CaseDigest:LungCenterofthePhilippinesvs.

QuezonCityandConstantinoRosas
G.R. No. 144104
June 29, 2004
FACTS:
The Petitioner is a non-stock, non-profit entity which owns a parcel of land in Quezon
City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of
the Philippines. The ground floor is being leased to a canteen, medical professionals
whom use the same as their private clinics, as well as to other private parties. The right
portion of the lot is being leased for commercial purposes to the Elliptical Orchids and
Garden Center. The petitioner accepts paying and non-paying patients. It also renders
medical services to out-patients, both paying and non-paying. Aside from its income
from paying patients, the petitioner receives annual subsidies from the government.
Petitioner filed a Claim for Exemption from realty taxes amounting to about Php4.5
million, predicating its claim as a charitable institution. The city assessor denied the
Claim. When appealed to the QC-Local Board of Assessment, the same was dismissed.
The decision of the QC-LBAA was affirmed by the Central Board of Assessment Appeals,
despite the Petitioners claim that 60% of its hospital beds are used exclusively for
charity.
ISSUE:
Whether or not the Petitioner is entitled to exemption from realty taxes notwithstanding
the fact that it admits paying clients and leases out a portion of its property for
commercial purposes.
HELD:
The Court held that the petitioner is indeed a charitable institution based on its charter
and articles of incorporation. As a general principle, a charitable institution does not
lose its character as such and its exemption from taxes simply because it derives income
from paying patients, whether out-patient or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no money inures
to the private benefit of the persons managing or operating the institution.
Despite this, the Court held that the portions of real property that are leased to private
entities are not exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes. (strictissimi juris) Moreover, P.D. No. 1823
only speaks of tax exemptions as regards to:

income and gift taxes for all donations, contributions, endowments and
equipment and supplies to be imported by authorized entities or persons and by
the Board of Trustees of the Lung Center of the Philippines for the actual use and
benefit of the Lung Center; and

taxes, charges and fees imposed by the Government or any political subdivision
or instrumentality thereof with respect to equipment purchases (expression unius
est exclusion alterius/expressium facit cessare tacitum).

Facts:
The lung center is a charitable institution within the context of 1973 and 1987
constitutions. The elements considered in determining a charitable institution are: the
statue creating the enterprise; its corporate purposes; constitution and by-laws,
methods of administration, nature of actual work performed, character of the services
rendered, indefiniteness of the beneficiaries, and the use occupation of properties. As a
gen. principle, a charitable institution doe not lose its character as such and its
exemption form taxes simply because it derives income from paying patients, or
receives subsidies from government; and no money insures to the private benefit of the
persons managing or operating the institution.

Issue:
Whether or not the real properties of the lung center are exempt from real property
taxes.
Ruling.
Partly No. Those portions of its real property that are leased to private entities
are not exempt from actually, direct and exclusively used for charitable purpose. Under
PD 1823, the lung center does not enjoy any property tax exemption privileges for its
real properties as well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. Vi of the property taxes only.
This provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to
be entitled to the exemption, the lung center must be able to prove that: it is a charitable
institution and; its real properties are actually, directly and exclusively used for
charitable purpose. Accordingly, the portions occupied by the hospital used for its
patients are exempt from real property taxes while those leased to private entities are
not exempt from such taxes.

1. Whether Lung Center is a charitable institution within the context of PD

1823 ans the 1973 and 1987 Constitutions ans Section 234(b) of RA 7160;
2. Whether the real properties of the Lung Center are exempt from real
property taxes.
Petition is partially granted.
On the first issue, petitioner Lung Center is a charitable institution within the context of the
1973 and 1987 Constitutions. To determine whether an enterprise id a charitable
institution/entity or not, the elements which should be considered include the statute
creating the enterprise, its corporate purposes, its constitution and by-laws, the method of
administration, the nature of the actual work performed , character of the services
rendered, the indefiniteness of the beneficiaries, and the use and occupation of the
properties.
Under Pd 1823, the petitioner is a non-profit and non-stock corporation which, subject to
the provisions of the decree, is to be administered by the Office of the President with the
Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare
and benefit of the Filipino people principally to help combat the high incidence of lung and
pulmonary diseases in the Philippines.
Hence, the medical services of the petitioner are to be rendered to the public in general in
any and all walks of life including those who are poor and the needy without discrimination.
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether outpatient, or confined in the hospital, or receives subsidies from the government so long as
the money received is devoted or used altogether to the charitable object which it is
intended to achieve, and no money inures to the private benefit of the persons managing or
operating the institution.
The money received by the petitioners becomes part of the trust fund and must be devoted
to public trust purposes and cannot be diverted to private profit or benefit. Under PD 1823,
the petitioner is entitled to receive donations. The petitioner does not lose its character as a
charitable institution simply because the gift or donations is in the form of subsidies granted
by the government.
Therefore, the fact that subsidization is by the government rather than private charitable
contributions does not dictate the denial of a charitable exemption if the facts otherwise
support such an exemption, as they do here.
Even if we find that petitioner Lung Center is a charitable institution, we hold, anent the
second issue, that those portions of its real property that are leased to private entities are
not exempt from real property taxes as these are not actually, directly, and exclusively used
for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an exemption

is equivalent to an appropriation. Hence, a claim for exemption from payment of taxes must
be clearly shown and based on language in the law too plain to be mistaken.
It is plain as day that under the decree, petitioner Lung Center does not enjoy any property
tax exemption privileges for its real properties as well as the building constructed thereon. If
the intentions were otherwise, the same should have been among the enumeration of tax
exempt privileges under Section 2 of the decree.
Section 28(3) Article VI of the 1987 Constitution provides:
(3) charitable institutions, churches, and parsonages or convents appurtenant thereto,
mosques,
non-profit
cemeteries,
and
all
lands,
buildings,
and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.
The tax exemption under this constitutional provision covers property taxes only. what is
exempted is not the institution itself... those exempted from real estate taxes are lands,
buildings, and improvements actually, directly, and exclusively used for religious, charitable,
or educational purposes.
What is meant by actual, direct, and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized. It is not the use of the income from the real
property that is determinative of whether the property is used for tax-exempt purposes.
Petitioner Lung Center failed to discharge its burden to prove that the entirety of its real
property is actually, directly, and exclusively used for charitable purposes. While portions of
the hospital are used for the treatment of patients, other portions thereof are being leased
to individuals for their clinics, canteen, and for business enterprise named Elliptical Orchids
and Garden Center.
Accordingly, we hold that the portions of the land leased to private entities as well as those
parts of the hospital leased to private individuals are not exempt from such taxes. On the
other hand, the portions of the land occupied by the hospital and portions used for its
patients, paying or non-paying, are exempt from real property taxes.